Whatever the internal tensions or the personal desire to return to normal monetary policy, "what prevails over everything else is our determination to purse the mandate under which this institution was created", namely to keep inflation close to, but below, 2%, said the President of the European Central Bank (ECB), Mario Draghi, who bowed out on Thursday 24 October in Frankfurt after eight years at the head of the monetary institute.
In the presence of Christine Lagarde of France, who will succeed Mr Draghi on 1 November, the Governing Council reconfirmed the additional accommodative monetary policy measures it had adopted in September to deal with persistent low inflation (see EUROPE 12326/1).
In particular, the deposit facility rate was reduced (-0.50%) and the forward guidance on interest rates was strengthened. Above all, the ECB relaunched its asset purchase programme (APP) for a monthly amount of €20 billion from 1 November and for as long as necessary.
These measures had caused controversy through the media that was unusual for the European institution. The German, Dutch and French governors had expressed their opposition and Sabine Lautenschläger, a German member of the Executive Board, has resigned. She will be replaced by Isabel Schnagel, confirmed Thursday the president of the Eurogroup, Mário Centeno.
In an attempt to scale down the scope of this controversy, Mr Draghi leaned on the recently published minutes of the September meeting. "All members" of the Governing Council " agreed that a further easing of the monetary policy stance was warranted", he read. "A clear majority" of them said they were in favour of restarting asset purchases and "a very large majority" came out in favour of lowering the deposit rate.
According to the outgoing ECB President, the main objective of the decisions taken in September was to "cement" the accommodative monetary policy stance, reflecting market expectations, which were themselves shaped by "a weakening" in the inflation path over the medium term outlook. “To a very large extent, we have succeeded," he said.
Describing the decision on negative rates as a "very positive experience", he did not deny the possible existence of "side effects" in the event of a prolonged period of negative rates.
The Governing Council also reiterated the need for euro area countries to pursue a fiscal policy that enhances productivity and growth potential.
Structural reforms must be "substantially increased", Draghi said. While the current "slightly expansive" budget line supports economic activity, countries with fiscal space - such as the Netherlands or Germany - must act "in an effective and timely manner", while countries with a high public debt need to pursue prudent policies and meet structural balance targets.
However, Mr Draghi did not wish to comment on the renewed debate in Germany on the economic opportunity of the ‘golden rule’ enshrined in the German Constitution, which limits public debt.
Asked about the shortcomings in the governance of the euro area, the President of the ECB cited the absence of a central fiscal capacity, as national fiscal policies ultimately have a limited impact on other countries in the area. This should be of an "adequate size", able to mobilise in a "countercyclical" way and, above all, prevent any "moral hazard", he added. He congratulated Greece, which also now borrows at negative rates.
What advice would you give to Ms Lagarde? " No advice is needed, she knows perfectly well what she has to do. And she has a long period of time ahead to form her own view with the Governing Council on what to do," concluded Mr. Draghi. (Original version in French by Mathieu Bion)